Brits opt to spend rather than save

British savers have been withdrawing money from their bank accounts at the fastest rate for nearly 40 years, Bank of England figures show.

They took £23 billion ($41 billion) out of long-term savings in the past one year, equivalent to £900 for every household in the country.

They either spent the cash - which in many cases was earning little more than 1 per cent interest - or moved it to easy-access current accounts. The BoE figures suggest that record low interest rates have convinced many to give up on the prospect of meaningful returns on their nest eggs.

However, the withdrawals may also have helped to power Britain's economic recovery, with much of the cash being spent on consumer goods. The figures represent a reversal of a trend to hold on to money that began in 2007, at the start of the credit crisis. In the year to October 2012, £24.8 billion was added to savings accounts overall. But long-term savings fell by almost the same amount, a 4.7 per cent decline, in the year to October 2013. It marks the biggest fall since the 1970s.

Analysts said the figures would raise fears about the sustainability of the recovery. They urged Chancellor George Osborne to use his Autumn Statement on Thursday to encourage saving.

Sources have speculated that instead of providing individuals with incentives to put more aside, Mr Osborne may cap the maximum they can store in tax-free savings accounts.

Ros Altmann, a former Downing Street policy adviser, said: "The figures are desperately worrying. People are stopping saving for the long term because all the policies of the last few years mean you would be a mug to save.

"The problem is no economy can thrive in the long run without people saving. You can't run it on borrowing and debt, you need to save and invest for the future. If you just withdraw money and spend, you are talking about a recipe for long-term economic decline."

Tom McPhail of Hargreaves Lansdown, a fund manager, said: "The problem the Treasury have is that they want us to spend, and at the same time taxing accumulated savings must look quite attractive given the state of the public finances. That's why they have continually nibbled away at pensions. I just hope that they leave pensions alone in the Autumn Statement. We need stability."